Attending college or university is expensive, and if you have to borrow more than you can repay it may not be worth it.
Statistics Canada just released a study showing that undergraduate students in Ontario paid the highest tuition and compulsory fees in Canada for the 2013/2014 school year at over $8,000 per year. When you add in the cost of books and living expenses a college or university education can easily cost $10,000 to $15,000 per year, or more. A four year program could cost $50,000 or more.
Is $50,000 worth it?
In many cases the answer is “no”, a university education is a waste of money.
If instead of college or university you graduate from high school and start working immediately, even earning $10 per hour you have earnings of $20,000 per year. After four years you will have earned $80,000, as compared to the student who did not work full time while in school, and paid $50,000 for their education. That’s a $130,000 advantage for the person who didn’t pursue post-secondary education.
But wait! Isn’t it true that the university student will get a high paying job, and over their lifetime will earn significantly more than a high school graduate, so over time they will easily make up that difference?
Historically, that is certainly true: university graduates earn more than high school graduates. Unfortunately past history is no guarantee for the future, and in a weak economy jobs are scarce, even for university graduates.
Whether or not post-secondary education is a waste of money may well depend on how you finance your education. If you pay cash for your schooling and can’t find a high paying job when you graduate, it’s not the end of the world, but if you borrowed the $50,000 for your degree and can’t find a good job, you have a serious problem.
According to the Bank of Montreal the average student expects to graduate with over $26,000 in debt, and they expect it will take almost six and a half years to pay it off.
Of course expecting to get a good job and being able to pay off your student loan debt may not always happen, and the sad reality is that some students are unable to service their student loan debt. In our Joe Debtor survey earlier this year we discovered that 13% of people filing bankruptcy or a consumer proposal have a student loan, and the average student loan at the time of filing was over $13,000 (in addition to $37,500 in other debts).
Remember, under current bankruptcy rules a student loan is only discharged in a bankruptcy if you have ceased to be a student for over seven years so the only people going bankrupt to eliminate student loans have been out of school for a long time.
My point is this:
Education is great; debt is not, so before borrowing for education (or anything else) make a plan. Ask yourself these questions:
- Do I have a good chance of finding a good job in my field of study when I graduate?
- Will I be able to earn enough at my new job to pay off my student loan in a reasonable period of time?
- Would I be better off working for a year or two after high school to save some money to pay for some of my education, and reduce the amount I will need to borrow?
These are difficult questions to answer, but having a plan is very important. You may decide to work for a year and take one course in night school, to keep your costs low but also to prove to yourself that you are committed to your education. You may decide that even with a student loan your job prospects upon graduation are good, so it's worth the risk.
Formal schooling may be a good strategy for you, but only if you can accomplish your objective without a crushing level of debt, so consider your options, do the math, and make a plan to increase your chances for a successful financial future.